A projected trillion-dollar economy emerging around British Columbia’s natural gas sector is too important to be left to chance, according to a wide array of observers who say it’s time for an in-depth conversation on the province’s emerging role in the global energy economy.

Environmental groups want to explore options to mitigate the greenhouse gas effects associated with the extraction and processing of gas, a fossil fuel that releases carbon dioxide as it burns.

And business interests want to make sure that at least some of the government’s royalty revenue from this non-renewable energy resource, potentially $4 billion per year if it’s exported as liquefied natural gas or LNG, is banked away for the future in the manner of Norway’s $600-billion “Oil Fund.”

One thing that’s not in dispute is the value of the resource to the B.C. economy.

“Going forward we’ve got over 100 years’ worth of supply of gas that we know about today,” says Greg D’Avignon, president and CEO of the Business Council of British Columbia. That doesn’t factor in a recent announcement by Apache that it has identified a world-class gas resource in the Liard Basin northeast of Fort Nelson.

“The Canadian Energy Research Institute just put some numbers out. It’s about $600 billion in provincial GDP just on the upstream [extraction and processing] side. That’s not looking at [the development of] Liard and not looking at the LNG downstream side,” says D’Avignon. “So it’s going to be well over $1 trillion in GDP in the next 25 to 30 years. That translates into an additional $2 billion to $4 billion of annual government revenue, which is half the education budget of British Columbia.”

Need to think long-term

D’Avignon would like to see B.C. take the long view — the really long view — on the way it manages the revenue it expects to receive from expanded gas production.

“Granted it may be 150-200 years’ worth of inventory, but let’s think forward about what we can or could be doing for communities and for people, and for the province as a whole,” he says. “We are going to have this global play of huge magnitude and a new industry in British Columbia. Should we not, because it’s a non-renewable resource, be thinking about setting some of that aside for a rainy day?

“I think there is always this notion by default that we are going to take all that revenue and plow it into whatever people want, and I think it might be worthwhile to think about servicing what we need today but also about what we may need tomorrow.”

On June 21, Premier Christy Clark announced that the province will allow LNG producers to generate gas-fired electricity to support their operations. B.C. believes this is the best way to expedite the LNG sector’s development and react to opportunities in Asia where natural gas has been selling at prices six or seven times as high as the North American commodity price.

B.C.’s royalty revenue from gas has collapsed, thanks to a glut of gas in the province’s primary export market, the U.S.

David Austin, an energy sector commentator who provides legal counsel to independent producers, noted there may be a very large trade-off in giving LNG producers the ability to generate their own power.

About five to seven per cent of the gas piped from the northeast to LNG facilities would be burned to generate electricity, and gas producers in the northeast burn roughly the same amount when they’re processing it for commercial delivery.

B.C. collects a royalty on the gas that producers sell to customers, but there is no royalty on gas that is used to produce gas in the field. It is not clear whether this exemption also applies to gas that is used to run pipelines and generate the electricity needed to produce LNG. The foregoine royalty amount is very large, says Austin. “When gas is used to produce gas, then the government loses royalty. So there’s an actual cost to the government in not supplying electricity to the gas industry in order to get gas out of the ground.”

Environmental concerns

Meanwhile, groups such as the David Suzuki Foundation and Pembina Institute are concerned that the greenhouse gas effects of the LNG enterprise are not receiving the same attention as the economic opportunity.

“It just seems that we are not having a robust conversation about what the full picture of LNG looks like,” says Matt Horne, acting director of Pembina’s climate change program.

Horne says it would be a mistake to focus solely on the emissions from LNG power-generation facilities.

“I think it’s important to remember if we build the Shell plant [and others at Kitimat] for example, there is going to need to be a whole bunch of additional gas from the Horn River and the Montney to fill those plants. All that extraction results in greenhouse gas emissions, as well. If we are going to talk about doing it right in B.C. we are going to have to look at that whole picture.”

Spectra Energy’s gas processing plants at Fort Nelson and Pine River, for example, were the largest and second-largest greenhouse gas emitters in B.C. in Environment Canada’s most recent annual industrial emissions report.

“I think with forecasts ranging from doubling to tripling of gas production, all those processing plants are going to have to get bigger or we are going to have to add additional capacity in some way,” Horne says.

Using carbon capture and storage to curtail emissions, he says, would be a responsible move by the province. “I think you can make a compelling case that there is a good economic opportunity for some LNG, that B.C. can do it at a manageable environmental cost.”

Tyler Bryant, energy policy analyst for the Suzuki Foundation, is concerned that an overemphasis on gas exports will leave B.C. with an economic model like Alberta — a boom-bust cycle predicated by volatility in the global price of energy.

“I understand that the government thinks it has no other alternatives than to chase fossil fuel royalties but this is the type of short term thinking that has landed us in the environmental problems that we find ourselves today,” Bryant said. “B.C. is endowed with significant amounts of renewable energy and the human capacity to be a clean tech leader. The natural gas sector has much lower employment than other industries. Are the royalties really worth it or do we need to be playing the long-game?”

ssimpson@vancouversun.comTwitter.com/ScottSimpsun

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